Preston Pysh (00:08:12):

It’s funny that you say that because on the equity side of the house, the 2008 crash was very early in my investing timeline, and had a tremendous impact on just how I viewed markets and how cautious I was because of that deeply humbling experience early on in your investing career. And you’re exactly right. It polarizes the way that you view things. Anyway, I want to just capture your Bitcoin story. So you came into this in 2013, is that correct?

Matt Odell (00:08:45):

So I had two friends tell me about it in 2012. In order till the second friend told me about it, and then I basically came in as… I like the concept, but I thought it couldn’t work so I just started working through all the different scenarios of it going to zero. And then as I did that, I started to grow conviction. And then 2013 was when I started really believing it and realizing it not only could be a great investment, but that it was actually our hope. That it was something that we could actually rely on to have a better future. You talk about things that shape you. When I was growing up, I first heard September 11th in 2001. I was a New Yorker at the time, I had friends whose parents were in the towers and died in the towers, and it made me very nationalistic and I had a lot of pride and in our country.

Matt Odell (00:09:35):

And then 2008 happened, and I was becoming a young man and it was like a rug pull. I thought experts existed. I thought that people knew what they were talking about and knew what they were doing, and it was a huge eye opener that maybe most of us are just winging it and just trying our best. People made out like bandits that were culpable for the 2008, and I was like, “Okay. So it’s every man for himself.” And I leaned in, I became more of like a mainstream tech nerd. I thought maybe the Googles of the world, the Apples of the world were our hope and they could make the American dream come true again. And then in 2013, the Snowden leaks happened, and I was like, “They’re complicit as well.”

Matt Odell (00:10:22):

So all of that came together at the same time when I was trying to learn about Bitcoin. So to me at that point, Bitcoin was hope, and could be a massive investment opportunity. It was like a combination of the two things.

Preston Pysh (00:10:33):

Are either one of your friends still in Bitcoin today?

Matt Odell (00:10:37):

No, neither of them are. One of them spent an ungodly amount of Bitcoin on the silk road. He was the first one who introduced me to it. And then the other one, he was using his Bitcoin for online poker. He has some, but he doesn’t have that much.

Preston Pysh (00:10:52):

How many Bitcoin are we talking back in the day?

Matt Odell (00:10:56):

With the silk road guy, I didn’t see any of the transactions or anything. Your mind runs wild. Everyone just assumes it’s more than it is.

Preston Pysh (00:11:03):

Are we talking a thousand Bitcoin?

Matt Odell (00:11:07):

Probably. Early 2012 it was like $2 or $3 or something like that. 2012 was a ridiculous year. The entry to 2012 into… Maybe it was like $20. I wasn’t really interested in it. He kind of said it in passing and he wasn’t a credible source because he was using it to buy drugs. I was like, “The government’s just going to squash it.” The other guy, he was playing 10 Bitcoin hands. I don’t know.

Preston Pysh (00:11:32):

You know what’s funny is I think back to when I first got into, I heard all the different arguments just like you where people would say someday, if this thing actually does what it’s attempting to try to do, this thing could be worth a hundred thousand dollars of Bitcoin, or maybe even a million. And I remember hearing that when the price was low two hundreds. I thought, “My God. If it even got back to the thousand that it hit, this would be crazy.” And here we are today, $45,000 a Bitcoin. And I look at price targets like 10,000 that would’ve literally blew my back then and I’m thinking, “Wow, that would be unbelievable if you could buy it at those prices today.”

Matt Odell (00:12:19):

$10,000 was moon math to me. It was almost a joke. It was like a joke prediction. I would just multiply it by 10,000 and I was like, “Maybe we’ll get there.”

Preston Pysh (00:12:30):

It’d be like people hearing 10 million today. The equivalent of what those numbers meant back then. So here we are. You’re a big thing. When I think of Matt Odell, I think privacy. And I think everybody else would probably agree with that in the space. When I think of the common person, especially on Twitter, and they think about privacy. I think this is how your common person think about it. Well, I’m not going to get rid of my smartphone. Google, I’ve got to use it, Facebook or Twitter, whatever. I’ve got a social media account. They’re tracking me everywhere I go. If I’m standing next to a person at a bar, these companies know, through proximity, then they start showing up as friend recommendations.

Preston Pysh (00:13:10):

And Matt, is just really not that bad? It just makes me my life a little bit easier. They’re showing me things that I probably need to buy or that I’m interested in buying. I didn’t even realize that I might need these things. It’s really just not that bad. It’s kind of helping me out. I think you’re a common person. That’s how they think. So now tell us why that’s dangerous.

Matt Odell (00:13:32):

What I hear all the time is exactly what you just said. I’m too far gone. There’s nothing I can do. What point is it for me to try and improve my situation? I’m already a lost cause. And most people, what they think is that the common response is I have nothing to hide. But that’s not the common response. The common response is I’m already a lost cause. There’s nothing to do now. That’s a major fallacy in my opinion. We can improve in steps. You can improve, slowly and steadily, different parts of your life. At the end of the day, what happens is what we make has tradeoffs. That trade off balance is usually a trade off between convenience versus privacy and security. And most people choose the more convenient, cheap option. We have those tradeoffs in every aspect of our lives.

Matt Odell (00:14:18):

Whether you decide to spend with a credit card versus spending with cash, whether you decide to use Google Maps instead of using a dedicated garment GPS, whether you decide to use Gmail. It just comes down to whether or not you think it’s worth it. But I think it’s absolutely worth it, and if you do little improvements over time, they will add up. It’s important not to get overwhelmed. Everyone gets overwhelmed. And at the end of the day, what I expect is that most people will learn their lesson the hard way. We have never been in this situation before. There are companies that are literally designed around the business model of collecting as much information as possible from you. They keep that in databases, they sell it to third parties, that data gets leaked, it gets shared, it gets sold, it gets compromised by governments that might not have your best interests at heart, it gets compromised by malicious individuals that might be out to get you for some reason.

Matt Odell (00:15:08):

And as people get burned, they’re going to learn the less in hard way, and they’re going to seek out ways to improve their setup. What I hope is that it’s not as messy as it could be. When I look at the outlook here, I see people getting burned at scale, and it’s going to be very dark for a period. And I would prefer if people slowly improve their whole lives in terms of that trade off balance, that convenience versus privacy and security trade off balance now, so it’s a softer blow when we start to see these massive leaks.

Preston Pysh (00:15:39):

All right. So Matt, somebody who’s hearing this, they’re going to say, “Okay, what you’re saying is important. I want to improve my privacy, but I’m not going off the grid.” So what are just the easy 80% of the value for 20% of the effort type activities that a person can take with respect to privacy?

Matt Odell (00:15:58):

Preston, when you start going down this rabbit hole where it’s so exposed, the average person is extremely exposed. Try and limit your use to social media. I know I’m a little bit hypocritical; I use Twitter, but I don’t use any other social media. I just use Twitter. And I should use it less. I admit I should use it less. DNA tests. Don’t send your DNA to some random corporation that’s just going to hold it and bundle and send it out to other people and store it insecurely. They might even have the best intentions at heart and they just can’t even store the data securely. It’s just sitting out there. The home assistance. If I go into your house and I say, “Okay Google,” or “Hey Alexa,” and it responds to me, you’re doing it wrong. You can eliminate that.

Matt Odell (00:16:41):

I know it’s more convenient to have it, but you can eliminate that if it’s important to you. Limiting Google. There’s a website called privacyguides.org. I think it’s run by my friend Techlore, at least he is heavily involved with it, and it gives you alternatives to a lot of the things we use on our daily basis. Instead of Gmail, use a more privacy focused email. That’s probably one of the harder ones for people to kick, is the Google addiction. I admit that. Just slow and steady. Don’t get overwhelmed. Use your credit card less. If you see someone’s credit card statement, you know their whole lives.

Matt Odell (00:17:14):

I don’t know if you’ve ever looked at someone else’s credit card statement. But if you look at someone else’s credit card statement, you know everything they’ve ever done.

Preston Pysh (00:17:21):

So what are you saying? Pay with cash?

Matt Odell (00:17:24):

Yeah. Unless you’re in El Salvador [crosstalk 00:17:26] pay with Bitcoin. You don’t have to pay with cash everywhere. I know if you’re booking a hotel, it’s very difficult. You’re going to probably have to give them a credit card at least to do the reservation. But you go out to dinner with friends, choose to pay with cash more often if it’s an option. It’s not going to be an option for much longer, but as long as it’s an option, you should consider using that option. Once you start thinking about it, you should think about it from your own perspective. As you’re living your life, just think about things and think about it from a privacy first mindset. And don’t get overwhelmed about it because it’s very easy to just fall into this hole where you’re just discouraged, and you’re like, “There’s no shot. We’re just all screwed.”

Matt Odell (00:18:04):

But if anything, that feeling is exactly why you should be trying to improve yourself. And I think there’s a particularly strong incentive for Bitcoiners because we talk about sovereignty all the time. And I know from my mind frame, when I got into Bitcoin, I quickly got into the mind frame that I don’t have enough Bitcoin, I will never have enough Bitcoin, and I need to have more. And you start to come to the inconclusion is like, “How will I lose my Bitcoin?” Key aspect of the whole sovereignty question and being a sovereign individual and holding your own wealth and being your own man, is that you don’t have all these prying eyes on every little thing you do in your life. So I think there’s a direct financial incentive there for Bitcoiners specifically.

Preston Pysh (00:18:51):

Matt, when people think about privacy, there’s a lot of arguments for privacy advocacy in other protocols outside of Bitcoin. People were saying, “Hey, this thing has a public ledger. You can clearly see this.” I know that there’s people that are taking steps within Bitcoin with respect to Taproot and other things to improve the privacy. But I think your hardcore privacy folks are going to say, “Yeah, there’s other protocols to do this.” So how would you counter to that?

Matt Odell (00:19:20):

I think people fall victim to their biases, and they go really deep and they don’t see the bigger picture. And ultimately, Bitcoin is a freedom technology. It’s freedom money. If you compare Bitcoin to a Venmo or a PayPal or a credit card, we’re already off to a good start in comparison to the complete lack of privacy that those offer. Now, if you use Bitcoin in a default way, you can expose a lot of financial information about yourself, which is why I’m so vocal about it. And I think ultimately it’s really important for us to make privacy easier so that when people feel the need for privacy, when they get burned or when they realize that they want to improve their privacy, they need to have convenient, easy tools that are not too expensive for them to use to try and be more private, so they don’t have to read a whole textbook on it.

Matt Odell (00:20:13):

But ultimately, I think specifically what the [inaudible 00:20:17] don’t realize is whether you like it or not, it’s not our choice whether or not Bitcoin takes over the world. I think Bitcoin is going to be the reserve money of the world. So Bitcoin’s the reserve money of the world regardless. Our focus should be improving Bitcoin, improving the tools on Bitcoin, improving the education around Bitcoin, rather than trying to build completely separate systems. I think ultimately Bitcoin will be the best privacy coin, if you want to use that terminology. It’s a terminology that gets thrown around a lot.

Preston Pysh (00:20:49):

Is this because Bitcoin’s won the decentralization race against these other protocols, and because of that, you got to take what privacy comes with it? Is that the argument?

Matt Odell (00:21:02):

It’s basically a short versus long term kind of thinking. A high time preference versus low time preference type of thinking. I think that short term, some of these other projects, specifically Monero; that’s the elephant in the room. Specifically Monero can be useful for transactional privacy today in a way easier fashion than it is to use Bitcoin privacy tools. But I think ultimately that means nothing. It’s short term. And I think short term, if Bitcoins absolutely need privacy, they can swap spending cash into Monero and spend it. But that doesn’t mean that Monero is going to overtake Bitcoin. I think long term, what we see is first of all, a key aspect of these protocols and a key aspect of Bitcoin specifically, is that we have a native token to pay miners. And this token has to be native. Because if it’s not a native token, then you have third party risk.

Matt Odell (00:21:57):

If we’re trying to pay a miner in a stable coin peg to Fiat, then someone’s got to be holding the Fiat in a bank account somewhere. And you have this middle man, and that middle man can get pressed. We had Nick say trusted third parties are security holes. So you need to have a native token. And that native token needs to be at least stable, but it should be accruing in value. This is the issue that I get into on both sides, because a lot of people like to frame people into two camps. You have value investment camp, and then you have the transactional cash camp. Privacy first, and number go up doesn’t matter to them.

Matt Odell (00:22:37):

Really, you need both. You need a native token that accrues purchasing power, and you need to be able to spend it at will without permission. Whether we have better privacy tools today, which honestly I think it’s been improving way quicker than I expected, at least on the app level. But stuff like Lightning, Lightning still has a ton of holes. But on the app levels and with Lightning and better wallets and whatnot, we’ve improved tremendously over the last two years. I think what happens is we have, basically as people get burned, the need for transactional privacy on Bitcoin, easier transactional privacy.

Matt Odell (00:23:15):

If you know what you’re doing, you can use Bitcoin relatively private today. But easier transactional privacy will be something that basically the market will demand. And whether it’s projects on the side of Bitcoin, wallets on the app level that bring most of it, or whether that’s certain protocol improvements that help enable the app level to do better, ultimately we will get it. It goes back to what I was saying earlier is that there could be a messy period in between when we’re all getting burned and learning our lesson that we need to improve quickly, or we can get ahead of it and not have such a dark period where individual Bitcoiners are getting…

Matt Odell (00:23:54):

The way I view it is very, very censorship resistant at the protocol level. It’s extremely robust, it’s really hard to attack the protocol, a lot of our worst case scenarios are kind of behind us now, but it’s super vulnerable still at the individual Bitcoiner level, especially if you’re targeted. If you have an authoritarian or a specific malicious individual that decides to target you, corners are very vulnerable right now. As we get burned, as people get burned, we will learn and we will improve everything around Bitcoin, including in transactional privacy.

Preston Pysh (00:24:29):

So Matt, when I think about just the distribution of the coins, and let’s say that we go through this scenario, the hyperbitcoinization scenario. We’re in this world where a lot of countries are starting to look like El Salvador. When I think about where a majority of those coins are going to dwell, a significant portion of them are going to sit on the balance sheet of a corporation. Those corporations are going to play by whatever rules and regulations the states are going to force upon them because at the end of the day, you have employees that are working, the managerial piece of this, the accounting of this, the regs, the policies that they have to uphold. So you’re going to have such a significant portion of coins in circulation that are held by those entities and not individuals.

Preston Pysh (00:25:13):

At the individual level, I get it. I understand why this is so important for people to have their own self sovereignty. I guess the question that I toy with is how do these two different worlds, one that is trying to obey whatever policies and regulations are there that control an enormous amount of points or tokens of the amount of units that are in circulation, versus this other group of individuals that are maybe not so inclined to act that way. I think a lot of people still will, whatever the policy or whatever the tax laws are, they’re going to obey that because they don’t want to go to jail and all those reasons.

Preston Pysh (00:25:53):

So at the end of the day, I guess what I’m trying to get at; I understand the fight and I understand the fight that the individual person’s trying to have. But are they going to win that fight when you have so many entities and other individuals that are just going to comply with whatever the states publish or demand?

Matt Odell (00:26:13):

We have a couple things going for us. First of all, Bitcoin is for enemies. We had SegWit2x prove that. This is not a proof of stake system. If you have more coins, it does not give you more power over the network. Very grateful for that. And I think the proof of stake systems, they’re going to learn that lesson the hard way. Imagine if the majority of your validators is an ETF or something, or regulated exchanges and an ETF product. That is a horrible situation to be in, and they will force changes through. On Bitcoin, we don’t have that issue.

Matt Odell (00:26:44):

The second thing is I think it was kind of genius of how the supply distribution happened in the beginning, where it was very quick. It was not too quick, but it was quick enough that a large portion of coins are held by ideologically driven Bitcoiners that believe in sovereignty that are individuals, not corporations. So even when you see micro strategy holding a hundred thousand Bitcoin, there’s anonymous whales out there that none of us know who their name is who control that much. The third thing is, I think you mentioned El Salvador. And El Salvador’s a perfect example bridge of my last point.

Matt Odell (00:27:26):

We have had a very Western driven base of Bitcoiners basically who have mostly looked at it as an investment, especially over the last five, six years. You have this buy and hold strategy where you don’t spend. Part of that is driven by the tax laws. When you spend is when you have to pay taxes. So the government has kind of forced the hand of law abiding Bitcoiners who, they don’t want to do that, so they just buy and hold and then they’re making their money in Fiat anyway, so they spend their Fiat. El Salvador is a very interesting test case because we have people living paycheck to paycheck, they don’t have much savings, and they’re going to be spending Bitcoin on the regular because all of these different merchants accept Bitcoin… They have to accept Bitcoin down there.

Matt Odell (00:28:08):

And as they do that, they’re going to be hitting pain points. Pain points that we haven’t experienced because we haven’t had this real spending culture. And as we hit those pain points, they’ll be a market driven approach to basically solve those pain points. Because if you can solve those pain points, your wallet will be used more. So I come at it from this, we’ve never really had a proper free market before because you’ve always had these centralized third parties that get captured in control of the different markets. So you never really have a proper free market. The Bitcoin development, especially on the app side, is true free market. You can permissionlessly innovate on the side of Bitcoin, integrating with Bitcoin, and we will see massive improvement happen basically as people hit these pain points.

Matt Odell (00:28:57):

We don’t even know the pain points exist yet. People don’t realize if you’re living on $30 a week and you need to spend that $30 in that week, how does that work and how do you do that without the merchant knowing how much you’re making? That is going to get solved as people hit that pain point. And as far as the institutions go, it doesn’t matter. They will learn their lesson, hopefully some of them will stop custodying with regulated custodians. I think it’s bad form for their shareholders. They’re exposing their shareholders, allowing someone else to hold their keys, so I think they have a fiduciary responsibility to at least use some kind of collaborative custody option.

Matt Odell (00:29:35):

But at the end of the day, Bitcoin’s designed in a way that what’s the worst that could happen? If they have a lot of coin, they can dump it on us. They can lower the market price for how long? Not that long. A short period of time. And then afterwards, they can have fun staying poor.

Preston Pysh (00:29:53):

So Matt, what are your thoughts just in general on Lightning and its development in the past year?

Matt Odell (00:30:01):

I think Lightning has beaten all my expectations. I went from a Lightning bear to a massive Lightning bull, to a cautious Lightning bull, and now I’m inching back up again. I think Lightning has a lot of pain points, specifically on the privacy side. There’s a lot of privacy benefits that it could gain us, but they’re not really in focus right now. And I think that ultimately we’re doing it live. People have said to me, “Are we ready for El Salvador?” No. We were never going to be ready until it happened because we basically need the market pressure to spur the development. If the use case isn’t existing, then no one’s going to gear towards the use case. So I think what’s going to happen is there’ll be some messy periods in Lightning development, some users will get burned.

Matt Odell (00:30:53):

We haven’t really seen any kind of massive funds loss, which I think is the number one thing. You kept saying reckless reckless. Basically what I did is my learning strategy is I just dive into things. So I was reckless on Lightning, and I really didn’t lose much Bitcoin. I lost some, but I didn’t really lose much. And it was because of fees and stuff. It was because I was experimenting and we were in a high fee environment at the same time. But I never actually had catastrophic fund loss. So I think the main pain point is probably privacy on Lightning. It seems like if you don’t care about privacy, it works really well today as is. So I think as we use it, it’ll push it.

Matt Odell (00:31:33):

I want to reiterate though that Lightning could fail. I don’t think it’s going to fail, but it could fail, and I would still be bullish on Bitcoin. No one uses Liquid, but Liquid is interesting. There’s also this other concept called Statechains that I find really interesting that has a completely different trust model but is more private, and there’s probably all these different things. There’s wizards out there that I can’t even conceive of, that if they see a market need, they will bring it to market and we can permissionlessly use it. So ultimately to me, the bullish thing… basically when I came out of the Bcash war, and the popular opinion is a lot of people thought that meant no Forex could ever work on Bitcoin.

Matt Odell (00:32:14):

What it meant to me was if there was ever actually a need, if there was ever actually something that Bitcoin absolutely needed to survive, that Bitcoiners actually needed to use their better money, then the market will wheel it, and it won’t be catastrophic. Bcash wasn’t catastrophic to us. It was a horrible idea and was led by inept people and there was no market fit for it, so it failed. But if there’s a market fit for something and there’s an over… It’s hard to measure, but if there’s an overwhelming demand for something, then ultimately users will decide how they want to proceed by their own choice. That’s the beauty of Bitcoin. Buy your own choice. No one’s forcing your hand.

Preston Pysh (00:32:56):

So Matt, When you say that you think that there’s privacy concerns on Lightning, I just look at my own full node, I know it I’m running poor on my Lightning node, and I have some stats on my Lightning node and I can send those to you over Lightning. How would that be a privacy issue? Help us understand the technical side of where there’s a privacy concern if I’m doing those things with my node.

Matt Odell (00:33:23):

Well, first of all, a lot of people are just using Custodial Lightning.

Preston Pysh (00:33:28):

Somebody else is running the note on their behalf.

Matt Odell (00:33:31):

They’re using BlueWallet. A lot of people are using BlueWallet or Wallet of Satoshi, and we see the screenshots. The Bitcoiner makes his El Salvador pilgrimage and he goes, “Oh, I just bought coffee with the Lightning network, and I paid no fees. I paid very little fees.” And he was using a custodial wallet, and maybe the merchant was using a custodial wallet. So if you’re in that situation, privacy wise, you’re in a better version of the current Venmo, PayPal or cash app because at least it’s interoperable. You’re trusting the app with your privacy. Whoever’s running the app with your privacy. And what have we seen throughout history? If you trust a third party, they’re going to be a security hole. They might get compelled to add KYC.

Matt Odell (00:34:15):

Maybe we’re in a honeymoon period, usually Bitcoin custodians have to add KYC. They all end up bending the knee eventually at some point. So I think a lot of the pain points have been hidden from view because we have these easy to use custodial wallets. And so then if you’re seeking better privacy, you can use your own node, you can keep it in your office, keep it on 24/7, you could hopefully be funding it with coin joint outputs…

Preston Pysh (00:34:47):

But those are all options, Matt.

Matt Odell (00:34:50):

And you could use it more privately. But ultimately, for an El Salvador use Lightning network privately, what they really need is very user-friendly mobile wallets. Most people don’t have computers, most people aren’t going to have… The beauty of Bitcoin is that anyone can run a node, and that it’s low cost and it’s accessible. And we need to keep it that way so that anyone who wants to use their own node can use their own node. That is absolutely important. But we also have to come to the realization that the overwhelming majority of people are just going to be using mobile wallets. Mobile is the future. If you check any kind of analytics on any kind of website, the majority of people that are hitting your website are doing it from their phone. Most people don’t have computers. Most people aren’t going to be running a server at their home 24/7.

Matt Odell (00:35:34):

We were talking about privacy in your everyday life. Why are you using the Google Cloud? Because it’s less convenient. Because very few people will do that. So the main pain point is for those types of users. We’ve seen massive gains there. We’ve seen wallets like Muun wallet [inaudible 00:35:50] two years. We’ve seen while it’s like Phoenix wallet. We’ve seen wallets like Breez wallet that operated in a less custodial fashion. There’s still some trust elements, but it’s not custodial technically. There’s been massive development there in a short period of time, and I think that improves. But I also think there’s an element here, and we’ve seen really good progress there by ideological Bitcoiners.

Matt Odell (00:36:11):

There’s a group called PlebNet and there’s another one called Rings of Fire where basically the idea is that ideologically minded Bitcoiners are running their own node on tour, and they’re providing liquidity for the network between other ideologically-minded Bitcoiners. Because one of the concerns is that the major liquidity providers, when you’re talking about Lightning at a high level, there’s all these gotchas with privacy. And that’s the thing. We want to remove as many gotchas as possible because people aren’t going to be thinking about gotchas. That’s where they shoot themselves in the foot.

Matt Odell (00:36:40):

One of the gotchas is basically when you’re visualizing Lightning, you’re hopping between nodes to get to… Me and you don’t have to be directly connected. We can hop between a couple of nodes to get there. We can have all those nodes be KYC regulated companies. They can’t be Bitrefill, Strike, Bitfinex. We need to have individuals that no one knows where they live, that are running tour nodes that are providing liquidity. And PlebNet has been doing massive work there, which is really good to see. And I just mentioned Strike. Strike is a perfect example. How many Lightning payments are Strike? I love Strike, I love Jack Maulers, but it’s a bridge. It’s almost a stop gap until we’re in a fully Bitcoin world. And until then, if you’re using Strike, obviously you’re sacrificing your privacy to that company, and they’re going to store all that information and hopefully secure it properly.

Preston Pysh (00:37:32):

And I think Jack would agree with you [crosstalk 00:37:34]. Yeah, no doubt. Hey, so I just have to say this because we were talking about using Lightning in El Salvador. This was the coolest thing. I’ve seen why this is possible, and it was just so neat to see. Somebody posted a picture of their QR code to pay for a hamburger at Burger King. And they tweeted out the QR code of the invoice that Burger King provided them to pay for their burger, and the person tweeted out the QR code and said, “Hey, can somebody buy me a burger?” And then this person tweeted underneath of them, “Yeah. I just paid it. Enjoy.”

Preston Pysh (00:38:15):

All they did is they took their Lightning wallet and they scan the QR code. They paid for the invoice at Burger King in El Salvador via a Twitter picture, and this was paid for in… As far as Burger King is concerned, they have no idea who just paid them. They know that they got paid and they’re like, “Hey dude, here’s your hamburger. I don’t know where that came from, but we were paid.”

Matt Odell (00:38:41):

That’s what I was talking about in terms of… Privacy people tend to have a one track mind with privacy. And that’s why you have diehard people who will say, “I will never use Bitcoin. I will only use Monera.” Right?

Preston Pysh (00:38:55):

Mm-hmm (affirmative).

Matt Odell (00:38:56):

But the reality of the situation is Bitcoin as it is right now is a massive step up improvement over our legacy finance system from a privacy perspective. That transaction, if you were trying to pay Burger King, you’re going to give them your credit card information over Twitter, and then it’s shared by however many companies in the chain are getting all that information, your billing address, your full name, your full credit card information. Maybe all that history gets sold to marketers and stuff like that. It’s already a massive improvement. And then the second thing you mentioned there is they were sending to Burger King. So with Lightning, the privacy guarantees are way better on the sender’s side. So if I was sending to you a payment on Lightning, it wouldn’t be easy for you to tell if I sent you the payment or if someone else sent you.

Preston Pysh (00:39:49):

Yeah. If I provided you the invoice, you could have one of your friends pay it.

Matt Odell (00:39:51):

Right. But your invoice gives me your fixed node public key. It gives me your IP address if you’re not running through tour, that’s why everyone should be running through tour. Fortunately, all these node packages just to fall through tour. I would be able to tell your public channel capacity how much Bitcoin you have in your channels just from the invoice. I could tell your public channel capacity, and if I was a sophisticated actor, I could probably figure out your private channel capacity too through something called probing, where I keep sending bogus payments through your node to see where your channels are and how you’re connected to things.

Matt Odell (00:40:28):

So the receiver’s side, we still have a lot of work to do. The sender’s side, we’re way closer and it already gives you a major privacy improvement over using on chain.

Preston Pysh (00:40:37):

This is the thing that I think is also crazy and I think few understand this. If Burger King wanted to receive dollars through that Lightning invoice through a service which Strike is providing, they could receive dollars. They could prompt the invoice, “Hey, here, pay this Lightning invoice,” and they want to receive US dollars on their end. The person paid it with Bitcoin, they have an immediate swap of whatever the exchange rate was with no fee straight into dollars, and as far as they know, they just receive dollars and they’re going to hand you a hamburger.

Matt Odell (00:41:13):

We already see that today. So Burger King, I’m pretty sure, is using open node. Pretty sure Starbucks is using open node in El Salvador. So open node has [inaudible 00:41:21] slider. You can choose how you want to receive it. If you want to receive a hundred percent automatically switched back into US dollars, or you want a portion of Bitcoin. The majority of them are probably just automatically converting into US dollars, right?

Preston Pysh (00:41:32):

Yeah.

Matt Odell (00:41:33):

And then on the sender’s side, if you’re sending from something like Stripe or even Chivo wallet. Chivo wallet supposedly USD to Bitcoin, easy conversion in the government wallet, then you can just send a USD payment that instantly gets converted into Lightning, gets sent to them, and then instantly gets converted back to US dollars for a minimal fee, very fast, way more private than a normal Fiat transaction. And like I said, that’s the stop gap basically. It’s the bridge to a fully Bitcoin world. It’s the training wheels.

Preston Pysh (00:42:05):

And a Visa and MasterCard is charging you 2.9% previously. Now you have removed that expense completely for every transaction that comes through in the way that we just described. I think what you’re going to find with a lot of these international type companies is as they learn more, as they’re forced to learn more through situations like the one we’re describing now, you’ve got the Ukraine that seems to be taking a similar path to El Salvador. What I think you’re going to actually find is, if they’re free cash flows of the business is 10% after tax of every dollar of revenue that comes through the door, well, all of a sudden any type of payment that comes through is going to be immediately converted.

Preston Pysh (00:42:44):

90% of it’s going to be converted into dollars, the other 10% is going to be kept as Bitcoin as savings, and whatever that tax-free cash flow is for these companies, they’re just going to retain it in to Bitcoin and the rest will stay in dollars because that’s what most of their expenses are still denominated in. And then once the expenses, the electrical expenses and all these other things start getting denominated in Bitcoin, that’s when it changes.

Matt Odell (00:43:09):

That’s the thing that people are missing about El Salvador. There’s a lot of complaints on Bitcoin Twitter about the fact that it’s illegal tender law that they’re forcing all businesses in El Salvador to accept Bitcoin. But the big chicken and the egg with a circular Bitcoin economy is the merchant doesn’t want to hold all Bitcoin because they can’t pay their suppliers in Bitcoin. But in El Salvador, they can now. In El Salvador, all their local suppliers are forced to accept it. They have no choice. So you take away basically the last real good reason to need to have some kind of US dollar exposure, because you’re able to just directly pay your suppliers in the Bitcoin you received.

Preston Pysh (00:43:51):

Yeah. It’s fascinating. It’s going to be really interesting to see how it continues to evolve. But I think just getting them accustomed to dealing with it, and then seeing the benefits especially on a transactional level as far as the fee reduction and removing of these… I call them Rube Goldberg machine fees because of all the clearance that has to take place. All of those are gone and you’re getting this instant settlement, and it’s just something that I don’t think anybody who’s not intimately familiar with it really fully understood what was there. And now they’re seeing it firsthand and it’s extremely exciting to see.

Preston Pysh (00:44:29):

I want to transition gears here with you. I want to talk about mining. One of the questions that I just was curious about that somebody had, how in the world did you meet Marty Bent? And then talk to us about just some of your general thoughts on mining in general for where we’re at right now in this particular cycle.

Matt Odell (00:44:47):

I met Marty because I was episode 23 of Tales from the Crypt, before Rabbit Hole Recap existed. He saw me on Bitcoin Twitter and I was very privacy focused and I had a no podcast rule, and he seduced the hell out of me. On his fourth time requesting for me to come on I was like, “Okay.” I was like, “Let’s do it.” And we had a great time. We found out that we lived very close to each other and we became Bitcoin buddies, and I think a month or two months later, the idea of the Rabbit Hole Recap was born. And then the rest is history. Then I was automatically chatted with them once a week about Bitcoin. And that point, we were doing it all in person. I would go over to his apartment and we would just rip it in his little studio apartment. We used to say live from the studio but it wasn’t a podcast studio. It was his bedroom. And now he’s a brother.

Preston Pysh (00:45:41):

So on the mining front, because I know Marty’s heavily involved in mining, how about some of your thoughts on where we’re at? One of the things that I’m particularly interested in is just the supply chain impacts, and what this might mean for mining as we’re growing not in a linear kind of way, but in more of an exponential and in a volume kind of way, we’re going outwards in many different directions. And to keep pace with the demand for this seems to be kind of hard for hardware suppliers to do. So what are some of your thoughts on those ideas?

Matt Odell (00:46:16):

So the funny thing about mining, proof of work in general, is that it’s one of the most fascinating aspects of the whole network. It is what allows you to validate all these transactions, secure the chain that the nodes are validating, that the miners are securing the chain, and it allows you to do it without a trusted third party in a permissionless way. Combined with the difficulty adjustment, this idea of distributed proof of work with the automatic difficulty adjustment is absolutely mind-blowing. That’s a rabbit hole in itself. And the funny thing is there’s a large portion of this industry that believes that’s a problem with Bitcoin that needs to be solved.

Matt Odell (00:46:55):

And then they even go further, there’re some people that believe in proof of work but think that ASICs are an issue and that you should be able to mine on your computer. And this is a regular computer. ASICs are a feature, not a bug. The fact that we have these purpose-built machines that are super expensive and that are bricks, if Bitcoin fails, is a massive incentive by miners. It aligns incentives with minors and the rest of stakeholders on the network. But the one issue with ASICs is that it seems… This is the first time it’s ever happened, it’s only been really theorized, but we’re watching it play out.

Matt Odell (00:47:32):

There’s an adoptions phase. And during that adoption phase, we were pretty vulnerable. One or two companies were producing the ASICs, they were also the major miners, they were also mainly located in China, they were all buddies with each other, they’d have like eight person meetings or they controlled 60% of the hashtray or 70% of the hashtray. We were very vulnerable, especially in 2017 with Bitmain. And Jihan Wu of Bitmain knew that, right. That’s why he was trying to flex with Bcash and really…

Preston Pysh (00:48:05):

And he still failed.

Matt Odell (00:48:06):

Well, I think we dodged a bullet. I think he didn’t have the balls in November 2017, December 2017, he never flipped his hash. He was only mining a certain portion of his hash was actually mining on Bcash. He kept the majority on Bitcoin. If he had just flipped all of his hash to Bcash, we might have had to switch proof of work. We might’ve had to switch our algo and brick all existing ASICs, and fortunately, he was just too scared to kill his golden goose, which is the incentive. That’s the incentive that kept him at bay. So I was a little bit concerned at that point. And you can go back. I don’t delete any of my tweets. You can go back. There’s threads and threads and threads about Jihan and Bitmain.

Matt Odell (00:48:45):

So we dodged that bullet, and I think that was the major bullet, and then to a lesser extent, this recent migration out of China, this distribution hash really, to me, was extremely bullish fundamental. And a lot of people conflate that with the hash is moving to the United States. If all the hash was moving to the United States, it wouldn’t be bullish. The beauty is that it’s really distributing globally, and it’s also distributing between smaller miners. And that’s one of the cool things that Marty’s doing, is that they’re doing these off-grid sites. That’s not a major warehouse marathon or a riot where they’re a major regulated company and they’re holding all this hash and this large holding coin that you talked about earlier. That large regulated institutions in the majority of hash holding a large amount of coin.

Matt Odell (00:49:39):

So right now the market is not fully pricing in that phenomenon, what we’ve seen go down, and when people start to realize we basically crossed the Rubicon is how I feel about it. But ultimately what I want to see is, I want to see more home miners, I want to see building supplementing their heat with ASICs in their water heaters. I think there’s actually, in the adoption phase of ASICs, there was economies of scale. Bitmain produced the bASICs, they had cheap power, they had them first, they can mine with them really quickly and all their labor costs were lower because they were doing mass scale mining. So there was massive economies of scale because the major issue was the ASICs would obsolete super quickly.

Matt Odell (00:50:33):

So you’d have a major hardware investment, you were in a rush, you needed to know exactly what you’re doing. Now, we’re already seeing with the S9s, they’ve been profitable for like four or five years now. So I think as we start to see these life cycles plateau; you don’t have these exponential increases in ASIC power or ASIC efficiency. It really comes down to efficiency. It becomes more practical for someone to install a water heater that they want there for 10 years and not worry about the ASIC becoming obsolete. And when you have that situation, you’re able to take the waste heat, you’re able to get KYC free coin, so all of a sudden the smaller miner has the advantage that has two or 3 Asis compared to the big regulated minor that has a hundred thousand ASICs in a warehouse.

Matt Odell (00:51:21):

And when we hit that point, and we’re getting closer and closer to that point, that is extremely bullish. That is something that I’ve been hoping for for a very long time now.

Preston Pysh (00:51:30):

Just because of the distribution. So you don’t have any one entity that’s controlling anything. It’s just distributed at that point so well.

Matt Odell (00:51:38):

We have like three stakeholders in Bitcoin, we have the people using their own nodes and holding their own keys, and there’s some overlap, and then you have the miners, and then you have the exchanges, and they all kind of keep each other in check. So for the same reason we don’t just want a couple of nodes on AWS, is the same reason we don’t want mining centralization. So as it distributes, the network becomes more robust.

Preston Pysh (00:52:07):

Here’s a question I like, Matt. From where you’re sitting right now, what are one or two risks that really make you cringe a little bit? If somebody knew this, not that we want to put this out on the air, but we got to be reasonable about where the risks lie. What would you say those are today? You said back in 2017 the Bitmain piece was a concern for you. Do you see a risk like that existing right now?

Matt Odell (00:52:34):

So risks. So first of all, I’d like to say that there’re certain things I talk about publicly on air, there’s certain things I talk about on my names online, and then there’s certain things that only get discussed at 2:00 AM in a dark pub.

Preston Pysh (00:52:50):

With Bourbon.

Matt Odell (00:52:52):

With Bourbon. So I’m not going to talk about the dark pub things. Like I said earlier, I think that Bitcoin is extremely censorship resistant at the protocol level. And that’s what it comes down to. At the end of the day, the censorship resistance is the value prop of Bitcoin. It’s hard to seize, and you can spend or save at will without anybody’s permission. That’s the value prop. Otherwise, we could just use traditional finance methods. So ultimately what we’re looking at here is you want to preserve censorship resistance. You want to preserve the ability for people to spend and save at will without permission. And on a network level, we’re extremely robust. But at an individual level, we’re still very vulnerable.

Matt Odell (00:53:40):

The major vulnerability there is there’s two major vulnerabilities. It’s holding your own keys, which I think we’ve gotten a lot better about; the tools have gotten way easier to use. I think five years ago if you told people that probably 50 to a hundred million people holding their own keys would be completely unimaginable. Who could secure their keys? How can that many people secure their keys? I don’t know if we’re at those numbers yet because seed security is still a little bit primitive. But the privacy risk, the overwhelming majority of people are coming in through KYC exchanges and on ramps, they are getting their full identity, all that information is being taken by the exchange, and an important thing when we’re talking about KYC is governments say that they’re putting this in place to stop crime.

Matt Odell (00:54:36):

The criminals are all using fake KYC data. They’re fine. They’re doing whatever they want to do with impunity. It’s the law abiding citizens that are getting burned by this. It’s not actually stopping crime. But if you have all these people coming in through KYC, and then they’re not using privacy best practices, there’s basically… Maybe I’m being a little bit hyperbolic, there’s databases of Bitcoiners. There’s databases of Bitcoiners and how much Bitcoin they own, and every single transaction they make because there’s chain surveillance companies that make a profit doing the forward-looking stuff after you withdraw.

Matt Odell (00:55:10):

So when those databases leak or if a government… Americans tend to be very American centric. If a major government in Europe let’s say decides that they want to crack down on Bitcoiners, they have all these databases available. They can crack down on individual Bitcoiners. They can criminalize private Bitcoin usage if they want to. Is it going to be hard to enforce? Yes. Are they going to have to go individual by individual? Yes. But they can only make our lives really difficult if they wanted to make our lives really difficult. So I think that is my biggest concern. I think it starts with education. If you look at gun rights in America, gun rights in America, the gun lobby has been super successful about trying to push back on any kind of lists of gun owners.

Matt Odell (00:55:56):

In Bitcoin land, for the last three or four years, most people in the industry have been cheering on these kinds of KYC regulations. We want regulatory clarity. We want these large exchanges to exist, and we’re fine with giving up that privacy. And that’s very short-sighted. We need to realize the risk at play here and how it makes us all vulnerable as a whole, and at least start pushing back at least with education. That there is a risk there. I’m beginning to get a little bit long-winded. We had Coinbase in 2015, 2016. They fought the US government, the US government wanted the information on every single user. Instead, they gave information on 20,000 Americans, every withdrawal address, every deposit address, full Bitcoin buys and sells, and if you use all that information with the chain surveillance company, any transaction they made outside of Coinbase.

Matt Odell (00:56:53):

That’s scary. Maybe we can trust the US government, I’m not going to make a comment on that, but what if it’s another government? What if it’s an authoritarian that decides that he wants to use that information in the wrong kind of way? So we’re very vulnerable on the individual level, but I think that network, it keeps just beating my expectations. It’s really robust.

Preston Pysh (00:57:15):

So you’re obviously a well-read person. What is, for you, a must read book? And feel free if you want to just say one or three or whatever. It’s totally up to you.

Matt Odell (00:57:27):

The number one book that a Bitcoiner has to read is The Sovereign Individual.

Preston Pysh (00:57:31):

It’s like reading a fortune telling book from 20 years ago.

Matt Odell (00:57:35):

It’s crazy that they wrote in ’95.

Preston Pysh (00:57:36):

Yeah. It’s nuts.

Matt Odell (00:57:38):

The only thing they got wrong is Y2K.

Preston Pysh (00:57:40):

That’s true. Anything else?

Matt Odell (00:57:43):

I’m a big sci-fi guy. A lot of my thinking was shaped by sci-fi. Brave new world, Snow Crash.

Preston Pysh (00:57:52):

That’s one of Adam Backs big books. He’d like Snow Crash.

Matt Odell (00:57:56):

Yeah. Snow Crash is like a dystopian free market kind of thing. It doesn’t have Bitcoin in it, which makes it unrealistic. That was my biggest complaint about… Now it’s like if I read a new sci-fi, if you don’t have Bitcoin in it, you’re the least forward thinking author there is. What’s going on there?

Preston Pysh (00:58:15):

How about influencers? People that you just admire, that you look up to that just shaped who you are.

Matt Odell (00:58:23):

I don’t know. First of all, I hate the term influencers. I think people with platforms [inaudible 00:58:28] trying to influence people. I think the goal in Bitcoin should be… The dynamic that I think of when I think of an influencer is you try and basically get people to need you. You’re their crutch. And my goal has always been to help them find their independence. Andreas, he was very early on for me, very big. I was like Xebo, Andreas, Xebo, Snowden was a big one for me. He’s not Bitcoin. He’s recently come around to Bitcoin. How about you?

Preston Pysh (00:59:04):

People will be surprised to hear I was highly influenced by Warren Buffet. People might look at it and say, “Oh, you were influenced because he made a bunch of money and you were just looking at that.” But to be quite honest with you is more of his moral, ethical… Whenever he said something, I just knew that he was coming from… Or at least I felt like he was saying it from a place of trying to help people and educate people on his thinking and how he valued different companies and whatnot. I think people in the Bitcoin space might look at that and really raise an eyebrow. He’s the king of Fiat and that doesn’t make any sense, Preston.

Matt Odell (00:59:47):

Rat poison squared.

Preston Pysh (00:59:48):

Yeah. Rat poison squared, him and Charlie Munger. But to be honest with you, the thing that they taught me, both Charlie and Warren taught me, was just the importance of education and the importance of just reading everything you can get your hands on, question everything. If you can’t argue both sides of something, well then you probably have a biased point of view on it. Try to extract the emotion out of what you’re doing and just really dig into all the facts and circumstances that lead you to a conclusion. And so for me, that was really influential early on in my life, even though I completely disagree with them on Bitcoin, obviously. But I would argue that the foundation and the educational background that they instilled in me allowed me and encouraged me to disagree with their point of view.

Preston Pysh (01:00:38):

That was the one of the first things I learned from Buffet is he went into this discussion with like the CEO of Geico at the time. The guy said that he just had recently bought more stock or something. I can’t remember the exact nuances of the conversation, but he told Buffet, “Yeah, I own the stock. I’m buying more or whatever.” And so Buffett was like, “Well, I guess I know what I’m going to buy.” And the guy was like, “That’s the exact wrong reason to buy it? If you’re buying it because I’m buying it, then you’re totally missing my point of what I’m trying to tell you here.” And so that lesson really instilled in me, I shouldn’t be buying something because Warren Buffet likes it or doesn’t like it. The process of trying to understand why you value something is really what’s important and was a huge impact on me in general.

Matt Odell (01:01:25):

My Bitcoin journey in the beginning was heavily heavily nim focused. It was random strangers on the internet that had names they made up, and we were an IRC, we were on Bitcoin Talk, we were on Reddit, no filter, basically everyone learning together. And for a lot of the years, bitcoin Twitter also evolved in kind of that way. And I think one of the cool things about Bitcoin is not the influencers. There are a lot of people that have very good writing that give us great content that we can consume and think about things. But to me, the most powerful thing is the community. And it’s basically, you have all these peers that are… We’re all on the same level learning together and bouncing ideas off of each other even though sometimes it could be very aggressive.

Matt Odell (01:02:19):

To me, that’s really cool. But there’s no leaders. There’s no Vitalic that you’re looking up to to tell you how to think.

Preston Pysh (01:02:27):

No, I love that. I will be honest with you, Matt. One of the things that I liked the most that you put out there is this idea of just being humble. This is what I’ve learned in financial markets before I came to Bitcoin. As soon as you think you are not going to mess something up, you’re about to fall on your face, just flat on your face. And so the message of just staying humble, stacks ads, question everything, educate yourself to the nth degree. And when you get there, then study some more and learn some more and challenge those thoughts. All of those things just totally resonate with me, and I think that when you get around people in this community that are Bitcoiners through and through, they just have that in spades where they don’t know they’re right. They think they are or they like to think they are, and they’re very open to somebody providing a counter-argument.

Preston Pysh (01:03:21):

And they want to hear the counter-argument and they want to dissect the counter-argument. Then maybe on Twitter, we don’t necessarily demonstrate that because maybe it’s our 50th time arguing a topic that might be new to the other person, but we’ve heard it for five years. We’ve been through it many at times. Hey, give people a hand off. If there’s anything you want to highlight, an article you want to highlight, I know you’re active on Twitter but you’re also trying to keep your privacy as low profile as possible, but give people a handoff.

Matt Odell (01:03:53):

Don’t get overwhelmed. People shouldn’t get overwhelmed. Hold your own keys, use your own node, be humble enough to realize that you don’t know everything with Bitcoin and it’s a constant learning process, constantly seek to improve, be humble enough to realize that Bitcoin isn’t perfect and that we can do things to improve the experience for everybody, help your fellow Bitcoiners help your fellow man, and almost access.

Preston Pysh (01:04:20):

Love it. Matt Odell, thank you so much for coming on the show, and we got to do it again.

Matt Odell (01:04:25):

Thank you, Preston.

Preston Pysh (01:04:27):

Hey, so thanks for everybody listening into the show. If you enjoyed the conversation, be sure to subscribe to the show on whatever podcast app you’re using. We really appreciate that. And if you have time, leave us a review. So thanks for joining us this week, and we’ll catch you next Wednesday.

Outro (01:04:42):

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